Insurance Q&A: “How much do insurance agents make?”
Just like any other commission based sales job in the world, the sky is the limit as far as income goes for an insurance agent. However, it’s not that cut-and-dry.
There are a number of ways to get into the industry as a sales agent and a lot of products to potentially master and sell. How much you get paid depends on where you start.
It’s also worth noting that, just like any other sales job, you should not expect to earn very much money until you have built a solid client base. That’s when the money really starts rolling in because of the many renewals that will begin taking place at the same time.
Of course, building a sizable book of business can take anywhere from 2-5 years (or much longer) depending on how hard you pound the pavement. It’s a marathon, not a sprint. You’ve got to be in it for the long-haul because it’s not just about one-off wins.
Expect 10 “No’s” for every single “Yes.” This means you will likely have to “pitch” to 100 people to sell 10 insurance policies, which should be at least half of the sales you’ll need to make to earn some decent money every single month. If you’re not already scared, keep reading.
How Property and Casualty Insurance Agents Are Paid
Typically, an insurance agent is paid a commission, or percentage, of the total insurance premium the insurer charges for a given policy.
Property and Casualty (auto, home and business) insurance agents typically earn anywhere between 7% and 20% commission on each policy sold. If you forced us to come up with a solid number, we’d say 12% is what you can expect on average.
Example: $1,000 auto insurance policy at 12% commission would net you $120.00.
Each year, assuming your client is still happy and continues to insure with you, you will earn a “renewal” commission. Renewals are where the money’s at, as you do not have to advertise or spend time quoting the policy for it to renew (usually).
If the client makes the renewal payment, you get paid again…it may even happen while you’re sleeping.
Renewal policy commissions are often slightly less than the initial commission you get paid for the “new business.” For example, n ew business may be 15% and renewals only 10%.
As you can see, a few years into the process of building your “book” of business, the renewals from previous years virtually make your income exponential. There are few products you can sell where you get paid each year, whether you worked with the customer or not.
Example: Last year’s auto policy from the example above renews ($120.00) and you sell a new auto policy on the same day the following year, earning another $120.00 – your income for that day is now $240.00. Not a bad day’s work.
The average insurance agency, if run well, should have a target of retaining 90% of the previous year’s business.
You might lose 10% of the previous year’s business from unhappy clients who didn’t feel their insurance claim was handled well, so they shopped around and found cheaper insurance…or maybe their third cousin became an agent and they simply switched their insurance policy to him or her.
How Life & Health Insurance Agents Are Paid
Life and Health insurance agents get paid a little differently. There is still a commission, but quite a bit more is paid upfront compared to property and casualty insurance.
There are also renewal commissions, but these are paid at a much lower percentage (although maybe not less overall money than a property and casualty policy, as the premium is often substantially higher).
Example: You sell a $10,000 whole life insurance policy and receive 55% commission for the first year, which is $5,500. The renewal commission may be as low as 3%, which still nets you a respectable $300 per year.
Some life insurance companies may pay as much as the entire first year’s premium as a commission, and then not offer renewal money. The combinations of new and renewal commission for life and health insurance can vary greatly depending on the company.
Do You Want to Own an Insurance Agency or Work for One?
How much money you earn as an insurance sales agent can also vary greatly based on whether you start your own agency or work your way up at an existing agency. Of course, there are pros and cons to both options.
In the long run, if you’re getting into insurance sales so you can afford a yacht, being the agency owner is your goal.
It’s the same as any other industry. You make more money as an employer (if you’re good enough) than as an employee, but it requires more work.
Insurance Agency Owner
Expect to make much less in the short run if you open your own insurance agency, as every dime of your income from sales will be put back into keeping the bills paid and the doors open for the first couple of years. BUT, and this is a huge “but,” you’ll make significantly more money in the long run as an agency owner…if you can manage to stay in business.
Many insurance agencies are handed down to family members or simply purchased by someone who has enough money to buy one and doesn’t want to take the time to build the business from scratch.
Agent in Someone Else’s Insurance Agency
If you are new to the industry, you will likely start as a Customer Service Representative (CSR). If you are good enough at the job, and decide you like insurance enough, you may be able to “move up” to an agent, working on behalf of your employer.
The upside to this method is that you earn money immediately upon selling an insurance policy. You do not have to pay the phone bill, rent, utilities, insurance (yes, insurance agents need insurance), etc. That’s the owner’s problem.
You might expect to have your expenses paid, and in a large enough insurance agency, a processor to do your paperwork…which is a good portion of the job.
The downside is that you will be splitting your commission earnings with the owner of the agency you work for. After all, the insurance companies who offer these products will not let “anyone off the street” represent them and sell their insurance. If you’re new to the industry, you will have to ride someone else’s coat tails until you get your footing.
Captive or Independent?
You will also have the option of being a captive agent or trying to become an independent insurance agent. Captive agents typically sell insurance for only one company, whereas an independent agent sells insurance for multiple different companies.
For captive agents, think Farmers and State Farm. This option is great for people who don’t know the first thing about insurance. Pass a “sales aptitude” test and you’re off to the races with these types of insurers.
Many captive agents switch over to becoming independent agents after enough time in the industry, as captive insurers typically have a limited “appetite” from an underwriting standpoint. You will turn many clients away if State Farm does not want to insure the individual because they are “too risky.”
After becoming a successful captive agent and building your confidence, you may decide that you want the ability to insure anyone who walks through the door. This means you want to be an independent agent.
It’s much harder to become an independent agent, as you actually have to prove you know what you’re talking about to represent various insurance companies.
You’ll very likely need to demonstrate that you have previously sold a lot of insurance to qualify for a contract to sell insurance products independently. The commissions are higher here, but you need to satisfy multiple insurer’s requirements from a policy standpoint.
You may represent 10 companies, and each of them could expect you to sell a minimum of five policies per month, or they will terminate your contract and not allow you to sell their product anymore.
So going independent will likely require a few years of experience in the industry, starting by working with an existing independent agency or buying one.
To sum it up, there are a number of different ways you can make money as an insurance agent, and what you put in is what you’ll get out, much like any other sales job. Don’t expect it to be easy.